Question

Lew Co. sold 200,000 corrugated boxes for $2 each. Lew's cost was $1 per unit. The sales agreement gave the customer the right to return up to 60% of the boxes within the first six months, provided an appropriate reason was given. It was immediately determined, with appropriate reason, that 5% of the boxes would be returned. Lew absorbed an additional $10,000 to process the returns and expects to resell the boxes.
What amount should Lew report as operating profit from this transaction?
a) $170,000
b) $179,500
c) $180,000
d) $200,000

Answer 1

Answer:

a) $170,000

Explanation:

Total Sales = 200,000 X 2 = 400,000

-Sales Return = 400,000 X 5% = 20,000

=Net Sales = 380,000

-Cost of corrugated boxes = 200,000 X 1 = 200,000

=Gross Margin = 180,000

-Additional Cost = 10,000

=Operating profit = 170,000